How to Save Money by Putting Yourself First
Many people struggle to save money because they pay their bills and expenses first, and then try to save whatever is left over. But this approach often leads to little or no savings at all. A better way to save money is to pay yourself first - that is, to set aside a portion of your income for your savings goals before you spend anything else.
Why Pay Yourself First?
Paying yourself first is a powerful way to build wealth and achieve your financial goals. By saving money first, you are prioritizing your future over your present. You are also creating a habit of saving that can last a lifetime.
Some of the benefits of paying yourself first include:
You can save more money over time by taking advantage of compound interest, which is the interest earned on your interest.
You can reduce your stress and anxiety by having a financial cushion for emergencies and unexpected expenses.
You can achieve your long-term goals, such as buying a home, starting a business, or retiring comfortably, by saving consistently and steadily.
You can enjoy your money more by spending it on things that matter to you, rather than on things that you don’t need or want.
How to Pay Yourself First?
Paying yourself first does not mean that you ignore your bills and obligations. It means that you make saving a priority in your budget, and then use the rest of your income for your needs and wants. Here are some steps to help you pay yourself first:
Review your income and expenses. Look at your bank and credit card statements to see how much money you earn and spend each month. Identify your fixed expenses, such as rent, mortgage, utilities, insurance, and debt payments, and your variable expenses, such as food, entertainment, clothing, and travel.
Set your savings goals. Decide what you want to save for and how much you need to save. Some common savings goals are an emergency fund, retirement, education, vacation, or a big purchase. You can have multiple savings goals at the same time, or focus on one at a time.
Determine how much to save. A good rule of thumb is to save at least 20% of your income for your savings goals. You can use the 50/30/20 budget method to allocate your income: 50% for needs, 30% for wants, and 20% for savings. For example, if you earn $4,000 per month, you should aim to save $800 per month.
Automate your savings. The easiest way to pay yourself first is to automate your savings. You can set up a direct deposit from your paycheck to your savings account, or schedule a recurring transfer from your checking account to your savings account. This way, you don’t have to think about saving or be tempted to spend the money elsewhere.
Adjust your spending. After you pay yourself first, you can use the remaining money for your other expenses. You may need to adjust your spending habits to fit your budget. You can cut back on unnecessary or discretionary spending, such as eating out, shopping, or subscriptions. You can also look for ways to lower your fixed expenses, such as refinancing your mortgage, switching to a cheaper phone plan, or negotiating with your service providers.
Paying yourself first is a simple but effective way to save money and achieve your financial goals. By making saving a priority in your budget, you are putting yourself first and investing in your future. Start paying yourself first today and see the difference it makes in your finances.
Whenever you’re ready, there are 3 ways I can help you!
Organize Your Money Course: Are you ready to take control of your financial future, instead of letting it control you? This course will help relieve your financial anxiety and get you back on track.
Book a 1-on-1 Meeting: Whether you’re looking for assistance with your financial planning needs or are in the financial industry and you want to learn how to grow your practice, I can help.
Lake Avenue Financial: If you’re looking to build a relationship with a team who can help simplify, educate, relive the stress caused by money decisions and make sure you are on your way to financial independence, we are here to help!
Be Inspired to take Action
Join readers of the Inspire Action newsletter for tips, uplifting stories and actionable steps to guide you through your financial journey.